Construction industry

Construction industry



2.1Overview of Construction Industry

In Hong Kong, the construction industry plays an important role in the economy of Hong Kong. The Government announced in the 2009-2010 budget that it plans to spend HK$39.3 billion on infrastructures. According to the 2009 Economic Background and 2010 Prospects, in which published by the Census and Statistics Department, the construction activities contributed 3.1% to GDP in 2008 and the industry's employees accounted for 49,422 of the labour force in 2008. Also, the Government announced in the 2007-08 Policy Address that it plans over the next decade pushing forward 10 major infrastructure projects for economic growth. They were expected to create 250,000 additional jobs and were estimated to provide added value to Hong Kong economy over HK$100 billion annually.

2.1.1Claims and Disputes

Claims are commonly arisen in construction industry (Ren et al. 2001; Bradley and Langford, 1987). Barrie and Paulson (1992) stated that there is an increase of claims, liability exposures and disputes in the construction industry. In additions, it is more and more difficult to reach reasonable settlements effectively, economically at the right time. Ren et al. (2001) analyzed the reasons for these problems in terms of social, industrial and project aspects. For the social aspect, the construction industry experiences an increase in pressure from society to be more competitive in respect of time, cost, quality and environmental protection. For the industrial aspect, construction projects are commonly large and complex. The size of project and technological complexity are increasing. The interdependent relationships of project participants are complex. They come from different disciplines with their own interests and profits, but they have to cooperate with each other to carry out the works through contracts. For the project aspect, there are many uncertainties in a construction project such as unforeseeable site conditions, designs and specifications change and force majeure, etc. The standard forms of contract provide clauses for the claims of extension of time and direct loss and/or expense to deal with these uncertainties.

Since the participants have different expertises, cultures and interests, they may use different technique to assess the claims. The solution may be disagreed by the opponents (Kumaraswamy and Yogeswaran, 2003). When conflicts arise, negotiation between the participants may involve in the claim process. In fact, negotiation is the most suggestible method to resolve conflicts before they become disputes (Ren et al., 2001). The conflicts may escalate to be formal disputes. Further delay in dispute settlement has different negative effects. They include delay of the project, deterioration of the relationship between participants, and over budgets of the project (Iyer, et al., 2008). Therefore, it is essential to reduce the disputes as much as possible for better project performance.

2.1.2Methods of Disputes Resolution

To resolve claims, conflicts and disputes, methods currently used in the Hong Kong industry include commercial settlement, negotiation, mediation, adjudication, arbitration and litigation. Among all the methods, negotiation is considered as the most effective method in respect of less time, low cost, satisfactory outcome, minimum further disputes, better communication and relationship (Turner, 1999).


Negotiation is a complex process that mainly used to resolve conflicts and disagreements. Negotiation is important to resolve claims, prevent disputes and maintain a good relationship between project participants (Ren et al., 2003). Smith (1992) believes that negotiating is a nontechnical “survival” skills for project participants. Although negotiation is the most common and cost effective way to resolve the claims and disputes (Turner, 1999; Ren et al. 2001; Aibinu et al., 2008), not every negotiation will be effective. Some constraints may limit or restrict negotiators to perform efficiently (Ren et al. 2001, 2002, 2003). Claims may be resolved inefficiently due to the constraints, and may end up with delay resolution, even expensive litigation. The inefficient negotiation may also lead to late settlement of claims in which cause conflicts, delays or low productivity of the project (Zack, 1994). Therefore, it is worth to study the constraints and to see how to improve negotiation performances, which will be investigated in this sub-section.

2.2.1 Definition

Gulliver (1979) defined negotiation as one type of problem-solving processes. People may have disagreement and conflict on matters of common concern. In negotiation process, they make an effort to reach a joint decision. Glaser (1991) defined negotiation as one form of communication in which people have mutual satisfaction.

2.2.2 Negotiation Constraints

The claims negotiations may be inefficient. It is because different intellectual background, many variable involved, complex interactions among construction participants and inadequate negotiation knowledge (Zack,1994). The constraints will be discussed in the following:

First of all, the construction project teams are composed from different organizations. Each participant represents their own organization. Since they have their own interests, they would like maximize their benefits during the negotiation process. However, any participants are legally bound and the negotiation should be conducted within the contracts. Most of construction claims should be settled in accordance with the contract terms and provisions. Otherwise, the failure of negotiation then will force the participants into arbitration or litigation that they will suffer a lot. Due to this reason, the negotiator may maximize their benefits as much as possible and they may try to prevent from a conflict outcome. It is difficult to persuade opponent to lower their benefits. Therefore, different self-interests of the participants in negotiation is one of the constraints of negotiation.

Secondly, difference in awareness and interpretation of standard contract terms and provisions is a major contributor to the problems in claims management (Ren, 2001; Keane, 1994). It is because the contractors, engineers and clients have difficult perspectives on a project and have different expertise. As a result, they may have their own interpretation of the contract terms and provisions in an ad hoc manner and for their own benefits. Also, participants will understand the terms of contract base on their experiences and common sense. Sometimes, what was meant to be said may be the determining factor instead of what was actually written in the contract (Ren, 2001; Thomas et al., 1994). Besides, contract terms are usually ambiguous. Sometimes, the risks or responsibilities are not stated explicitly in the contract but is implied. Thus, it is difficult to clearly distinguish the risks or responsibilities of the contracting parties by single or few contract terms. In conclude, different parties in a negotiation intend to use their specific information and expertises to explain, argue and persuade the other party to accept. But they often fail to agree on the basis of a claim and how it should be settled.

In additions, negotiation is evidence-oriented, so information is important to the success of negotiation. However, participants usually hold distributed and asymmetric information due to their different roles. The client knows clearly the final products, budget and financial status. The architect as a project manager knows clearly client's requirements, contract document and contractor's financial status, progress and quality of the work. However, the contractor knows clearly about the details information such as the actual schedule, progress and the full picture of the claims and the loss incurred (Ren et al., 2001, 2002). These differences will retard the negotiation process.

Besides distributed and asymmetric information, according to the previous researches, inadequate information and poor documentation are the major problems of construction claims. For instance, the lack of authentic evidence is a primary reason of delayed payment and protracted disputes (Ren, 2001; Wood, 1975). Scott (1992) indicated that lack of sufficient recorded data on the effects of delaying and disrupting events is the main reason of failure in claim. Wilson (1982) and Badger and Gay (1996) also emphasized the lack of initial records as the major reason for the failure of claims. These records include minutes of meetings, correspondence, progress reports, photographs, records of delay and disturbance, and revised drawings, etc. If the recording system is not good, it may not easy for the negotiators to gathering all information before the negotiation.

Moreover, negotiation is considered as a time and energy-consuming activity (Ren et al., 2003; Hu, 1997). It is because lots of preparation works such as documentation, arranging meeting and gathering negotiators should be done before the negotiation. Also, negotiation involves exchange of information. It allows the opponent to know the collecting evidence, opponent position anticipation, negotiation objective and strategy analysis (Gulliver, 1979). Late submission of information to opponent will make negotiation inefficient. .

The negotiation may be limited or restricted by some human factors. Negotiators' personal abilities and attitudes usually decide the result of negotiations (Ren, 2001). In construction industry, the architects sometimes may have conflicting roles. They can be an independent professional expert as well as an agent of the clients. Currently, the clients rely on the architects and have low involvement in claims management (Vidogah and Ndekugri, 1997). It provides a chance for the architects to take advantage of the low client involvement and they may tend to discourage from the claims resulting from his/her defaults. The conflicting position of architect often increases the difficulty of negotiation and possibility of disputes.

Last but not the least, improper negotiation style will restrict the negotiations. Actually, different strategies adopted will give the different outcome of negotiation. Due to the different roles and self-interests between the contractor and architect, they will adopt different strategies to draw the settlement point from the middle towards their expected outcomes. For example, Pickavance (1997) mentioned that either or both parties may inflate the opening demands, misrepresent their positions or interests, withhold sensitive or potentially damaging information, use threatening behaviour or adopt an intransigent stance until the other side is ready to move. According to Smith's (1992) article, he also mentioned that adopting improper negotiation styles will cause inefficient negotiation. For example, starting with a win-lose approach allows pressure, threats and intimidation. If negotiator starts with this approach, it inhibits negotiator from reaching rational settlement by giving pressure on other party to give up their demand. Besides, there are many negotiation styles which are adopted depending on the situations. Sometimes, the negotiation strategies should be changed during the negotiation. If the variety of negotiating style of negotiator is not enough, it may result in failure of negotiation because the negotiator unable to change the negotiating style to tackle a particular style of negotiation. Also, negotiator may easily put the emphasis on the price up or down in negotiation process, it results in overlooking the scope of works, establishment of cost basis.

2.2.3 Negotiation Performance

Negotiation is a decision-making process in which people mutually decide how to allocate scare resources. (Curhan,, 2006; Pruitt, 1983). The negotiation performance should be divided into two aspects. They include objective behavioural outcome and social psychological measures (Curhan,, 2006). Thompson (1990) proposed that measures of behaviour and performance in negotiation can be classified into two aspects which are economic outcomes and social psychological measures.

Economic outcomes refer to “explicit terms or products of the negotiation such as whether or not an agreement has been reached” (Curhan,, 2006). They focus on the outcomes or products of negotiation exclude the process or methods used to achieve such outcomes. There are three measures of economic performance (Thompson, 1990). They include mutual agreement, creating resources and claiming resources. Also, Rahim's (1992) classified the negotiation outcome into two types which are functional outcomes and dysfunctional outcomes. Functional outcomes are positive outcomes. The examples of functional outcomes are improving organizational decision making, finding out alternative solutions to a problem, forcing people to search for new approaches, leading to synergistic solutions to common problems, stimulating innovation, creativity and growth, and enhancing individual and group performance. In summary, the functional outcomes relate to solving problems and reach an agreement. In the construction industry, the major objective of the negotiation is to resolve the conflicts and disagreements. Thus, resolving the claims efficiently without further conflicts is one of functional outcomes of construction negotiations. Also, negotiation involves an exchange of something for something between parties. (Kennedy, 2004), the outcome of negotiation should at least be satisfactory enough to both parties (Guliver, 1979). Also, time is another important factor in construction claim negotiation, whether negotiation can be started promptly is a functional outcome.

Social psychological measures in negotiation focus on the process and outcomes of negotiation and based on three elements of social perception which are perceptions of the bargaining situation, perceptions of the other party and perceptions of self (Thompson, 1990).

The perceptions of the bargaining situation relates to the negotiators' feelings about the negotiation process and its outcome such as the norms, context, structure and scripts, communication and information sharing, and fairness or justice involved (Curhan, 2006). Also, Thompson (1990) stated that negotiators' judgments of the fairness of the procedures and outcomes of negotiation and their expectations is one examples of social perception in negotiation. Thus, conducting negotiation in a fair manner is another kind of positive negotiation performance. Since construction claim negotiation is an evidence-oriented process which information plays a critical role, adequate information gathered before negotiation and effective sharing of information from both parties during negotiation can be functional outcomes.

The perceptions of the other party are more general processes of person perception and impression formation applied to the negotiation opponents. That means what negotiators think of their opponents and their own relationships with those opponents (Curhan, 2006). The perceptions of the other party can be further classified as individual or dyadic. The individual perception of the other party includes “the attributions that negotiators make about the opponents based on their behaviors such as their ethics, tactics, and strategies, and more general trait inferences such as expertise, cooperativeness, and friendliness.” (Curhan, 2006). Also, one of routes to integrative settlement of negotiation is a cooperative motivational orientation (O'Connor and Arnold, 2001). Therefore, one of negotiation performance can be whether the opponent is friendly and cooperative during negotiating. Dyadic perception of the other party includes “the attributions for development among negotiation opponents such as relationship, trust, respect, liking, and concern for the other party.” (Curhan, 2006). Thompson (1990) reported that perception of the other party include negotiators' behaviorial intention such as their willingness to interact with the other party in the future. Besides, integrative bargaining, one of the economic outcome of negotiation, can foster harmonious relations between parties. (Thompson, 1990; Pruitt and Rubin, 1986). Therefore, the preservation of on-going relationship is another negotiation performance.

The perceptions of self means that negotiators judge their own traits, performance, and worth, using both their internal awareness of their motivations and values, as well as their observations of their own behavior as if from the outside (Curhan, 2006). The negotiation performance in the construction industry can be also measured for the perception of self. For example, whether negotiator thinks that both parties are satisfied with the negotiation outcomes and whether the relationship can be preserved.

The former studies in construction claims, which related to the improvement of negotiation, mainly focus on the negotiation principles, styles, techniques and information system. Glaser (1982) has studied the negotiating style model. Nierenberg and Ross (2003) offer some skills for negotiation success. Ren et al. (2003) has developed a multi-agent system for construction claims negotiation model to resolve the inefficiency problem. However, few researches study the negotiation, especially negotiation in construction industry, in psychological perspective.


Self-efficacy theory is an aspect of a more general social cognitive theory. In the past decade, it has generated many researches in clinical, social, and personality psychology. In the negotiation aspect, Sullivan et al., (2006) has pointed out that the self-efficacy influences negotiators to choose tatics, which, in turn, indirectly influence negotiator outcomes. Indeed, some research on self-efficacy has indicated that efficacy beliefs affect performance levels through their impact on ambitious goal setting, efficiency in dealing with problems, and investment of effort and persistence (Wood and Bandura, 1990; Bandura, 1997). In this section, a social science theory - self-efficacy theory is discussed and the factors that enhancing the self-efficacy are investigated.

2.3.1 Definition

Self-efficacy was originally defined as a rather specific type of expectancy concerned with one's beliefs in one's ability to perform a specific behavior or set of behaviors required to produce an outcome (Bandura, 1977).

However, the definition of self-efficacy has been expanded. It refers to “people's beliefs about their capabilities to exercise control over events that affect their lives” (Maddx, 1995; Bandura, 1989) and their “beliefs in their capabilities to mobilize the motivation, cognitive resources, and courses of action needed to exercise control over task demands” (Maddx, 1995; Bandura, 1990) Thus, self-efficacy judgments are concern “not with the skills one has but with judgments of what one can do with whatever skills one possess” (Maddx, 1995; Bandura, 1986)

Bandura (1992) further defined perceived self-efficacy as “people's beliefs about their capabilities to produce designated levels of performance that exercise influence over events that affect their lives. Self-efficacy beliefs determine how people feel, think, motivate themselves and behave”.

2.3.2 Factors that Affecting Self-efficacy

Bandura (1977, 1986) has suggested four principal sources of information affecting perceptions of self-efficacy: performance accomplishments, vicarious experiences, verbal persuasion, and emotional arousal. Williams (1995) had suggested additional source of efficacy information which are imaginal experiences.

Performance accomplishments is based on personal mastery experiences. It is the most influential factors. Successful experiences at a task will enhance self-efficacy for that task while the failure experiences will diminish self-efficacy. The effect of success or failure depends on the timing and the total pattern of experiences in which the success or failure occur. After strong efficacy expectations are developed through repeated success, the negative impact of occasional failures is likely to be reduced. Indeed, occasional failures that are later overcome by determined effort can strengthen self- motivated persistence if one finds through experiences that even the most difficult obstacles can be mastered by sustained effort (Bandura, 1977). For example, persons who once tried to quit gambling for a day failed probably will doubt their ability to quit for a day in the future. On the other hand, a person who is able to quit gambling for a full day may hold strong self-efficacy expectancies for refraining from gambling for another day.

Vicarious Experiences is just like observational learning, modeling, and imitation (Maddux, 1995). The observers persuade themselves if others can do it, they should be able to achieve at least some improvement in performance. Vicarious experiences relies on inference from social comparison. It has weaker effects on self-efficacy expectancy than do direct personal experiences (Bandura, 1977). Also, observing one perform activities that meet with success does produce greater behavioural improvements than witnessing the same performances modelled without any evident consequences (Kazdin, 1974). The effects of vicarious experiences depends on factors such as the observer's perception of the similarity between himself and the model, the number and variety of models, the perceived power of the models, the similarity between the problems faced by the observer and the model. The influence of the model's success and failure is stronger with higher similarity. (Bandura, 1986, 1994).

Verbal persuasion is widely used to influence human behavior because of its ease and ready availability. It includes the others' exhortations, encouragement or suggestions, etc. People are led, through suggestion, into believing they can cope successfully with what has overwhelmed them in the past (Bandura, 1977). The potency of verbal persuasion should be influences by such factors as the expertness, trustworthiness, and attractiveness of the source (Maddux, 1995). However, the self-efficacy induced by verbal persuasion is also likely to be weaker than those arising from the experiences because verbal persuasion does not provide a reliable experiential base. It is believed that the self-efficacy induced by the suggestion will be extinguished by the disconfirming experiences (Bandura, 1977).

Psychological arousal (e.g. stress, fear, etc) may be another factor that affects people in judging their capabilities.Stressful and taxing situations generally induce emotional arousal that can affect perceived self-efficacy in coping with threatening situations (Bandura, 1977). Also, Maddux (1995) suggested that both anxiety and depression may have a deleterious impact on self-efficacy. On the contrary, it is believed that positive mood or emotionally clam may enhance the self-efficacy and is more likely to expect success.

Imaginal experiencesis another factor that will affect the self-efficacy level. People can generate beliefs about personal efficacy or inefficacy by imagining themselves or others behaving effectively or ineffectively in future situations, their possible behavioural and emotional reactions to those situations, and the possible consequent results (Maddux, 1995). Images may be derived from actual experiences, vicarious experiences or verbal persuasion with situations similar to the own anticipated. However, the influence of imaginal experiences upon self-efficacy is not as strong as the actual success or failure experiences. It is because imagining oneself doing something is less convincing than actually doing it. (Williams, 1995)

Controllability of the task in negotiation such as authority, available information, etc. will affect people's psychological conditions which may affect people's confidence in handling the issues. The more authority and related information, the more confident of the people are in making decisions. Kary and Babcock (2006) stated that “confidence is influenced by the degree of control negotiators expect to have over the process.”

2.3.3 Overview of Studies

Previous researches demonstrated that self-efficacy is related to the work-performance measure such as adaptability to advanced technology, coping with career related events, managerial performance, skill acquisition, newcomer adjustment to an organizational setting, and naval performance at sea. These research pointed out that self-efficacy is a reliable predictor of behaviour and performance across a range of independent activities, with better performance seen among those with higher levels of self-efficacy (Stajkovic and Luthans, 1998). Stajkovic and Luthans's (1998) research showed that the average correlation between self-efficacy and work-related performance is significant. The task performance may increase for 28% due to the self-efficacy. It is greater than those effects on task performance obtained from goal-setting (10.39%; Wood et al., 1987), feedback interventions (13.6%; Kluger and DeNisi, 1996) and organizational behaviour modification (17%; Stajkovic and Luthans, 1997).

Although the researches on self-efficacy become more and more mature, there are little researches dealing with self-efficacy beliefs on construction negotiations especially on negotiation constraints. Previous study concerned the impact of the self-efficacy on using tactics and outcome in negotiation (Sullivan et al., 2006). The study investigated how self-efficacy affects the way negotiator handle bargaining situations, including their choice of tactics and ultimate performance. It showed that “people who have confidence in their capabilities with respect to a specific task anticipate a successful performance, focus their thoughts on how they can succeed, and persist in the face of difficulty” (Sullivan, 2006; Bandura and Cervone, 1983, 1986; Cervone and Peake, 1986). This study is based on one of mediating processes that self-efficacy beliefs exert it influence on behavior (i.e. selection of environment and activities). The research found that the confidence level of using tactics has indirect effect on performance.

However, as mentioned before, self-efficacy beliefs produce effects on people's behaviour. Apart from selection process, there is a variety of processes mediate the relation between self-efficacy and performance. For example, self-efficacy beliefs also produce its effects through cognitive, motivational, affective process. (Bandura, 1993; Bandura, 1992). Therefore, self-efficacy beliefs have not only directive influence on the choice, but it can also affect coping efforts that people will expend and they will persist in the face of difficulties (Bandura, 1977). People with higher perceive self-efficacy activate sufficient effort that produce successful outcome (Stajkovic and Luthans, 1998; Bandura, 1986, 1997)

Similarly, in the negotiation context, the constraints are something that inhibit or reduce the success of negotiation. When the negotiators face these constraints and they have no choice but to face it, so the influence of self-efficacy on selection of environment or activities is little. Instead, it is believed that the influence of self-efficacy on cognition is greater. Self-efficacy influences cognition in four ways. First, they influence the goals people set for themselves. The stronger self-efficacy beliefs for performance, the higher goals people set and firmer commitment to goals than those with weaker beliefs about their abilities. Second, self-efficacy beliefs influence how people plan to achieve these goals. Third, self-efficacy beliefs influence how people develop the rules for predicting and influencing events. Finally, self-efficacy influences the efficiency and effectiveness of problem solving. In conclude, it is suggested that “when faced with complex decision-making tasks, people who believe strongly in their problem-solving abilities remain highly efficient and highly effective problem solvers and decision maker; those who doubt their abilities become inefficient and ineffective.” (Maddx, 1995; Bandura and Jourden, 1991; Bandura and Wood, 19989; Wood and Bandura,1989).


Constraints lead to inefficient negotiation. Since the negotiators cannot select the environment or walk away from negotiation constraints, the influence of self-efficacy on problem-solving through cognition is more important than influence on selection processes. This line of researches has not been studied in construction negotiation. As noted earlier, higher self-efficacy tend to have higher efficiency and effectiveness of problem solving. Consistence with this, it hypothesizes that there is a relationship between negotiators' level of self-efficacy in overcoming constraints and negotiation performance. In other words, negotiators with higher self-efficacy level in overcoming constraints tend to have higher achievement on negotiation performance.

As earlier mentioned, negotiator with higher level of self-efficacy will set higher goals and be willing to spend more effort to overcome the constraints and consequently achieve certain negotiation performance. Since if negotiators do not believe that they are able to do tackle these constraints successfully, they may not even try to do it, regardless of how well they perform. Consistent with this, it also hypothesize that negotiation performance depends on negotiators' level of self-efficacy in overcoming constraints. In order words, the level of self-efficacy contributes to the prediction of negotiation performance.

The aim of this study is to investigate the relationship between the level of negotiators' self-efficacy in overcoming the constraints and the negotiation performance. It is expected that this study can make contributions to construction negotiation. First, it links the behavioral theory and construction negotiation because the concept of self-efficacy for overcoming negotiation constraints has not been studied yet. Second, it is expected that the study can help the construction negotiators to understand the effect of self-efficacy on negotiation performance. Last but not least, this study will identify the source to enhance construction negotiators' self-efficacy beliefs which can help them to develop their self-efficacy beliefs.

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